Australia: Focus on RBA's minutes and governor Lowe's speech - Westpac

The Westpac's analysts say the main highlight for the Aussie remains Tuesday’s RBA May board meeting’s minutes and the speech by Governor Lowe.

• We are set for another big week in Australian rates markets. Following last week’s rise in the unemployment rate, there is currently a 72% probability of a 25bp rate cut factored in for the RBA’s next Board meeting on June 4.
• Whether the market is too confident or not will largely be resolved by Tuesday afternoon, as the RBA releases the Minutes of its May Board meeting and only a 90 minutes later RBA Governor Lowe will deliver a speech entitled “The Economic Outlook and Monetary Policy” to the Economic Society in Brisbane.
• The market is focused on the fact that the RBA has noted that “a further improvement in the labour market was likely needed for inflation to be consistent with the target.” With unemployment rising from 5.0% to 5.1% and now 5.2%, and underemployment near a record level, the market is convinced that there is sufficient momentum to dash the RBA’s hopes of an improvement.
• Of course, in the communication post the May Board meeting, the Governor also stated that “…the Board will be paying close attention to developments in the labour market at its upcoming meetings”.
• The highlights in both quotes are our own, and the key question is whether the RBA will have lost patience rather than wait for further evidence over the next few months. Presumably, some of that uncertainty will be resolved tomorrow. For now, our own forecast remains for an August rate cut.